2013: a year of read­just­ment and re­new­ing com­mit­ments to sus­tain­able growth for SEE

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Key points

Hi­lary Walsh, Econ­omy, Fi­nance and Trade Man­ager at Euromon­i­tor In­ter­na­tional

The global eco­nomic slow­down of 2012 was far sharper than ex­pected and its im­pact on the economies of South­east Europe turned the spot­light on the re­gion’s struc­tural weak­nesses whilst also ex­ac­er­bat­ing the ef­fects of the eu­ro­zone debt cri­sis.

For th­ese economies, 2013 is a year of read­just­ment and re­new­ing com­mit­ments to cre­at­ing ro­bust and sus­tain­able eco­nomic growth, an ap­proach which is fore­cast to re­sult in more promis­ing rates of real out­put in 2014. Moldova, Turkey, Kosovo, Mace­do­nia, Ser­bia, Al­ba­nia, Ro­ma­nia, Mon­tene­gro, Bul­garia, Bos­nia and Herze­gov­ina, Croa­tia, Slove­nia and Greece make up the key SEE economies. Five of th­ese are al­ready EU mem­bers, while “the Balkan 6” (Ser­bia, Al­ba­nia, Kosovo, Mace­do­nia, Mon­tene­gro and Bos­nia-Herze­gov­ina) and Turkey, are in the can­di­date process for mem­ber­ship;

The resid­ual ef­fects of the eu­ro­zone debt cri­sis are the key down­side risks that th­ese coun­tries are ex­posed to. How­ever, struc­tural is­sues such as high un­em­ploy­ment rates, un­sus­tain­able pub­lic debt and deficit lev­els, weak busi­ness en­vi­ron­ments and poor con­sumer con­fi­dence lev­els are also hin­der­ing over­all macroe­co­nomic prospects in South­east Europe;

Av­er­age re­gional growth in SEE or “emerg­ing Europe” is ex­pected to in­crease from -0.6% in 2012 to 1.0% real GDP growth in 2013 be­fore grow­ing by 2.3% in 2014;

In this group, it is the EU mem­bers who are the worst af­fected, coun­tries such as Croa­tia, Greece and Slove­nia still strug­gling with deep re­ces­sions, un­sta­ble fi­nan­cial sys­tems and lack of pri­vati­sa­tion drag­ging on po­ten­tial in­vest­ment lev­els;

By 2020, the re­gional av­er­age real GDP growth of South­east Europe will be 3.5%, up from just 1.0% in 2013, while the EU av­er­age in 2020 will still be just 1.9%.

Real GDP growth in se­lected SEE economies 2012-2014 Av­er­age re­gional growth in South­east Europe is ex­pected to in­crease from -0.6% in 2012 to 1.0% real GDP growth in 2013 be­fore grow­ing by 2.3% in 2014. While th­ese growth rates pale in sig­nif­i­cance when com­pared to the growth rates seen in Asia-Pa­cific and Africa and the Mid­dle East, emerg­ing Europe’s main com­peti­tors, the in­crease in out­put growth fore­cast be­tween 2012 and 2014 says a lot about the over­all prospects for the re­gion in the long term.

Moldova is fore­cast to be the fastest grow­ing econ­omy in SEE in 2013 and the third fastest grow­ing in 2014, with 4.0% real GDP growth ex­pected both years. The econ­omy con­tracted in 2012 thanks to a pro­longed drought which im­pacted key agri­cul­tural ex­ports but th­ese have since re­bounded healthily with re­mit­tances and in­dus­trial ac­tiv­ity also boosted. In­fla­tion in the coun­try also slowed from 7.7% in 2011 to 4.7% in 2012 and an es­ti­mated 4.6% price growth is ex­pected in 2013 which will con­tinue to take the pres­sure off con­sumers’ real in­comes, hence fu­elling con­sumer ex­pen­di­ture which is fore­cast to grow by 4.8% in Moldova in real terms in 2013, the big­gest in­crease in con­sump­tion in the re­gion;

In 2014, Turkey is ex­pected to be the fastest grow­ing econ­omy in South­east Europe, as well as the en­tire Euro­pean re­gion. De­spite this the coun­try is still strug­gling with un­em­ploy­ment and con­strained ca­pac­ity. Turkey is a highly open econ­omy but this cre­ates vul­ner­a­bil­i­ties in terms of weak de­mand from ex­ter­nal mar­kets and cap­i­tal out­flows which have been an on­go­ing is­sue since the global fi­nan­cial cri­sis of 2008-2009 and were made worse by the eu­ro­zone debt cri­sis. FDI in­flows shrank by 23.9% in US dol­lar terms in 2012 but this should re­verse in 2014 at least, if not sooner;

Kosovo is ex­pected to grow by 2.9% in real terms in 2013 be­fore ex­pand­ing by a fur­ther 4.3% in 2014. Kosovo has proven to be one of the most re­silient economies in South­east Europe since 2008, with real GDP growth av­er­ag­ing 3.4% a year in real terms. One of the “Balkan 6”, the next group of coun­tries hop­ing to ac­cede to the

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